UPDATE 1-Venezuelan oil company PDVSA's bonds hit by EMTA market move

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(Adds detail on Venezuela’s debt levels, background)

LONDON, Feb 12 (Reuters) - Emerging markets trade group EMTA has recommended that bonds issued by Venezuela’s state-owned oil firm PDVSA should be traded “flat”, or without accrued interest, the way bonds in default are typically traded.

The move follows a similar advisory from EMTA on Venezuelan sovereign bonds last month and is likely to extinguish any lingering belief that Caracas might try and avoid a default by PDVSA — the source of 90 percent of Venezuela’s export revenue — to protect its key oil assets.

Venezuela is undergoing a major crisis, with quadruple-digit inflation and shortages of food and medicine. Economists consistently describe a 15-year-old currency-control system as the principal obstacle to functioning commerce and industry .

While the government has vowed to stay current on its debt, it has also deferred payments into grace periods and beyond. It says U.S. sanctions are to blame for the delays.

Between its sovereign bonds and the debt of PDVSA, Venezuela is behind on more than $1.6 billion in payments, with a good portion of it falling outside the grace periods, Japanese bank Nomura said in a recent note.

Figures from last year showed Venezuela’s government debt totalled just over $140 billion. Analysts estimate that PDVSA has around $50 billion.

Legal experts say PDVSA is vulnerable to litigation because its offshore assets could be targeted by creditors.

“In a shooting war with creditors, immense pressure could be brought on Venezuela,” Lee Buchheit, one of world’s top sovereign debt restructuring lawyers, has said recently.

For a graphic on PDVSA’s problems click: tmsnrt.rs/2vc01II (Reporting by Marc Jones in London and Paul Kirby in New York, editing by Alexander Smith, Larry King)